KAUSALYA AGRO FARMS AND DEVELOPERS PRIVATE LIMITED,HYDERABAD vs. ITO, WARD-2(1), HYDERABAD

आयकर अपीलीय अिधकरण, हैदराबाद पीठ�, हैदराबाद INCOME TAX APPELLATE TRIBUNAL HYDERABAD A-BENCH : HYDERABAD BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MANJUNATHA G. ACCOUNTANT MEMBER ITA.Nos.187, 188 & 189/Hyd./2026 Assessment Years 2013-2014, 2014-2015 & 2017-2018 Kausalya Agro Farms and Developers Private The Income Tax Officer, Limited, H.No.16-31, 9th vs. Ward-2(1), Signature Phase, KPHB Main Road, Towers, Kondapur, Kukatpally, Hyderabad. Hyderabad. PIN-500 072. Telangana. Telangana. PAN AAGCS7285L (Appellant) (Respondent) For Assessee : Sri SNSR Chinmai, Advocate For Revenue : Sri Rakesh Chintagumpula, Sr. AR Date of Hearing : 04.06.2026 Date of Pronouncement : 10.06.2026 ORDER PER VIJAY PAL RAO, VICE PRESIDENT : These three appeals by the Assessee are directed against three separate Orders all dated 31.12.2025 of the learned CIT(A)-National Faceless Appeal Centre [in short "NFAC"], Delhi, arising from the penalty orders passed u/sec.271(1)(c) and 270A Income Tax Act [in short "the Act"],

2 ITA.Nos.187, 188 & 189/Hyd./2026 1961 for the assessment years 2013-2014, 2014-2015 and 2017-2018, respectively.

3 ITA.Nos.187, 188 & 189/Hyd./2026 3. Before the Tribunal, the learned Authorised Representative of the Assessee has submitted that in the quantum appeals the Tribunal has quashed the reopening of the assessment for the assessment years 2013-2014 and 2014-2015 and also deleted the additions made by the Assessing Officer for the assessment year 2017-2018. The learned Authorised Representative of the Assessee has referred to the Orders of this Tribunal dated 21.03.2022 and subsequently, the matter was remanded by the Hon’ble jurisdictional High Court and pursuant to the Order of Hon’ble High Court, the Tribunal passed Order dated 04.09.2024. The learned Authorised Representative of the Assessee has submitted that the Tribunal has quashed the initiation of re-assessment for the assessment years 2013- 2014 and 2014-2015 and also deleted the additions for the assessment year 2017-2018 and therefore, the penalty levied by the Assessing Officer for these assessment years u/sec.271(1)(c) and u/sec.270A of the Act has no legs to stand and liable to be deleted.

4 ITA.Nos.187, 188 & 189/Hyd./2026 4. On the other hand, the learned DR has fairly submitted that in view of the Orders of this Tribunal in quantum appeal, the penalty would not survive. However, she has relied upon the Orders of the authorities below.

“29. Next comes M/s. Kousalya Agro Farms and Developers Private Limited's four appeals ITA Nos.673 to 676/Hyd/2020 involving A.Ys.2012-13 to 2014-15 and 2017-18; respectively. 30. We find at the outset that its former twin appeals involve section 143(3) assessments framed on 14.03.2015 and 24.03.2016; respectively followed by the Assessing Officer's section 148 as many notices issued on 28.03.2019 issued after a period of 4 years from the end of the relevant assessment year. We thus quote section 147 1 proviso in light of our preceding detailed discussion to quash both these re-openings. All other pleadings on merits in both these appeals are rendered academic. These appeals ITA No.673 and 674/ Hyd/2020 stands accepted. 31. We now advert to ITA No.675 & 676/Hyd/2020 for A.Y.s 2014-15 and 2015-16, respectively.

5 ITA.Nos.187, 188 & 189/Hyd./2026 32. The assessee's former substantive ground in A.Y. 2014-15 challenging validity of re-opening stands declined in light of the fact that the same is based on a tangible material than any seized document during the course of search. This legal ground fails accordingly. 33. The assessee's latter substantive ground in A.Y. 2014- 15 herein as well as sole substantive grievance in ITA No.676/Hyd/2020 seeking to delete finance charges disallowance of Rs.24,09,170/- and Rs.1,33,94,799/- stands restored back to the Assessing Officer in light of our detailed discussion in the preceding main case. This assessee's third appeal ITA No.675/Hyd/2020 is partly allowed for statistical purposes and 4th appeal i.e. ITA No.676/Hyd/2020 is allowed for statistical purposes. Ordered accordingly.”

5.1. Thus, the Tribunal has quashed the initiation of the re-assessment proceedings u/sec.147/148 of the Act for the assessment year 2013-2014 which has attained the finality. Further for the assessment year 2014-2015 and 2017-2018 the Tribunal rejected the ground of validity of the reopening and remanded the matter to the record of the Assessing Officer for fresh adjudication. Against the said finding of the Tribunal, the assessee filed appeals before the Hon’ble jurisdictional High Court and the Hon’ble High Court vide its Judgment dated 02.02.2023 set-aside the Order of

6 ITA.Nos.187, 188 & 189/Hyd./2026 this Tribunal and remanded back the matter with a direction that the Tribunal to dispose of the appeals on merits as well as the validity of re-assessment proceedings. Thereafter, the appeals for the assessment years 2014-2015 and 2017-2018 were decided by this Tribunal vide Order dated 04.09.2024 in Para nos.11, 12 and 22 as under:

“11. In the present case, the original assessment has been completed u/s 143(3) of the Income Tax Act, 1961 and the assessment has been reopened u/s 147 of the Act beyond 4 years from the end of relevant assessment year. Once the assessment has been reopened after 4 years, then proviso to Section 147(1) of the Act comes into operation and as per said provision, the assessment cannot be reopened unless there is a finding from the Assessing Officer on failure of the assessee to disclose fully and truly all material facts necessary for his assessment. In the present case, going by reasons recorded by the Assessing Officer, we find that the Assessing Officer has recorded reasons on the basis of assessment proceedings of M/s. Indur Developers Pvt. Ltd for the A.Y. 2016-17 and made a sweeping statement that all the Kapil Group of companies are indulging in practice of collecting advances from customers and diverting interest bearing funds for non- business purposes being investments with group companies in the form of share capital and loans and advances. Further, the Assessing Officer considered the loans and advances received from the customers from the notes to accounts filed by the assessee along with regular return of income to support his reasons. From the above, it is undoubtedly clear that the Assessing Officer has

7 ITA.Nos.187, 188 & 189/Hyd./2026 failed to make out a case on the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. Unless the Assessing Officer make any allegations that the assessee has failed to disclose relevant facts for assessment, the assessment cannot be reopened beyond 4 years when original assessment has been completed u/s 143(3) of the Act. This principle has been supported by the decision of Hon'ble Supreme Court in the case of CIT Vs. Foramer France (2003) 264 ITR 566 (SC). Therefore, in our considered opinion, reopening of the assessment under Section 147 of the Act on the basis of the reasons recorded by the Assessing Officer, which is available in the assessment order, is a clear case of non-application of mind by the Assessing Officer, before initiating the proceedings under Section 147 of the Act. Therefore, we are of the considered view that the reopening of the assessment and consequent assessment order passed by the AO under Section 143(3) r.w.s. 147 of the Act dated 28-12-2019 is invalid and liable to be quashed. Thus, we quash the assessment order passed by the AO. 12. The second issue that came up for our consideration from ground no.2 of assessee's appeal is relating to the reopening of assessment u/s 147 of the Act, 1961. Since we have quashed assessment on legal ground, other grounds taken by the assessee. relating to the issue of addition towards finance costs becomes infructuous and thus, the ground of appeal taken by the assessee has been dismissed as infructuous. 13 to 21. xxxx xxxxx 22. We have heard the rival submissions and perused the material on record and gone through the orders of the authorities below. The fact borne out from the record indicates that the assessee being in the business of real estate development, has

8 ITA.Nos.187, 188 & 189/Hyd./2026 collected advances from customers for sale of flats / commercial complexes in terms of MOU. As per the terms of MOU between the appellant and the customers, there is a provision for payment of interest ranging from 10% to 14% in case of any delay in delivery of flats to the customers. As per the contractual agreement with the customers in terms of MOU, the assessee has paid interest on customers' advances and debited under the head finance charges. The AO has disallowed interest expenses on the ground that the appellant failed to prove utilization of advances received from customers for the purpose of business. The Id. CIT(A) went on a different footing and computed disallowance of interest for diversion of interest-bearing funds for non-business purpose. We find that the basic business of the assessee is real estate development, and in that process, the assessee collected advances from customers for sale of flats. As per the agreement with the customers, the assessee has paid interest in case of delay in delivery of flats. The assessee had also proved that the funds received from the customers in the form of advances have been utilized for the purpose of business of the assessee. In fact, it is not a case of the AO that the assessee had diverted funds for non- business purposes. Assuming for a moment that loans and advances given to group concerns are diversion of interest-bearing funds, the fact remains that, as the AO himself noted, the group companies of the assessee are also engaged in the business of real estate development and there is a business nexus between the appellant and the group concerns and thus, in our considered opinion, loans and advances given to other group companies can be said to be in the normal course of the business of the assessee and thus, there is a commercial expediency. Therefore, we are of the considered view that the AO erred in disallowing finance charges being interest paid on customers' advances without any

9 ITA.Nos.187, 188 & 189/Hyd./2026 valid reasons. The Id. CIT(A), without appreciating the relevant facts, partly confirmed the addition made by the Assessing Officer. Thus, we set aside the order of the ld. CIT(A) and direct the AO to delete the addition sustained by the ld.CIT(A) towards disallowance of finance charges amounting to Rs.1,33,94,799/-, which was confirmed by the ld. CIT(A).”

5.2. Thus, it is clear that the Tribunal while deciding the appeals of the assessee in pursuance to the directions of the Hon’ble jurisdictional High Court has quashed the re- assessment order passed by the Assessing Officer for the assessment year 2014-2015 and also deleted the addition made by the Assessing Officer on account of disallowance of finance charges for the assessment year 2017-2018. In view of the fact that the additions made by the Assessing Officer are no more in existence as deleted by the Tribunal, the penalty levied u/sec.271(1)(c) and u/sec.270A of the Act have no legs to stand. Accordingly, the penalty levied by the Assessing Officer u/sec.271(1)(c) for the assessment year 2013-2014 and 2014-2015 and u/sec.270A for the assessment year 2017-2018 are deleted.

10 ITA.Nos.187, 188 & 189/Hyd./2026 6. In the result, all the three appeals of the Assessee are allowed. A copy of this common order be placed in the respective case files

Order pronounced in the open Court on this the 10th day of June, 2026.

Sd/- Sd/-/- [MANJUNATHA G.] [VIJAY PAL RAO] ACCOUNTANT MEMBER VICE PRESIDENT Hyderabad, Dated 10th June, 2026 VBP/- Copy to 1. Kausalya Agro Farms and Developers Private Limited, H.No.16-31, 9th Phase, KPHB Main Road, Kukatpally, Hyderabad. PIN-500 072. Telangana. 2. The Income Tax Officer, Ward-2(1), Signature Towers, Kondapur, Hyderabad.Telangana. 3. The Pr. CIT, Hyderabad. 4. The DR, ITAT, A-Bench, Hyderabad. 5. Guard File. VADREVU Digitally signed //By Order // by VADREVU PRASADA PRASADA RAO Date: 2026.06.10 Asst.Registrar, RAO ITAT : Hyderabad. 13:05:45 +05'30'